Moving Our Focus from Innovation to Productivity

By Alan Finkel

Innovative businesses achieve better productivity and profitability.

In recent years both business and government have taken a far stronger focus on innovation and its implicit national benefits, such as productivity. Australia is better for this, but we still have a long way to go to convert the “virtuous circle” of research and innovation into commercial advantage and the resulting international economic success that follows.

A key for Australia is to think about innovation as an enabling attitude rather than an outcome. We need to foster an innovation culture, incentivise our world-class researchers, improve public/private research and innovation collaboration, and focus on ICT as a key enabler.

The purpose of innovation culture must be to pursue national productivity, which underpins national prosperity. Business needs to step up to this challenge.

Professor Peter Høj, the University of Queensland Vice Chancellor, made a strong point when delivering the Academy of Technological Sciences and Engineering’s annual oration last November. He noted that international rankings data show that the innovative and productive nations are those that encourage business research, measured in the first instance by the proportion of PhDs involved in business research.

Some Australian companies and sectors are already successfully employing highly trained PhDs. The Australian mining sector’s commitment to innovation – taking it to world leadership in fully automated mines and advanced refining techniques – is a superb example of globally significant innovation.

Australian mining is an example of innovation success that leads to higher levels of productivity, and addresses a globally significant challenge. It’s the kind of innovation we must celebrate and seek to duplicate throughout the nation’s industries.

Government also needs to play a key role in facilitating this process, both through monetary incentives – with improvements in the grants system, tax incentives and infrastructure – and the removal of disincentives such as untimely taxation on employee stock options and mires of green and red tape.

It’s encouraging that the Australian government is taking the innovation and productivity issues seriously and identifying their interdependence.

The Australian Innovation System Report 2012, which was issued last December, reviews the national innovation system and makes some salient points.

One is that productivity is not the only benefit generated by innovative businesses. The report notes that innovation-active businesses are significantly more engaged in the digital economy and earned more than $144 billion in internet commerce in 2010–11, more than three times non-innovators.

Another is that innovation encourages a more connected and skilled economy with greater market diversity and consumer choice. ABS statistics show that, when compared with businesses that don’t innovate, innovative Australian businesses are also:

• 42% more likely to report increased profitability;

• three times more likely to export;

• 18 times more likely to increase the export markets targeted;

• four times more likely to increase the range of goods or services offered;

• more than twice as likely to increase employment;

• more than three times more likely to increase employee training; and

• more than three times more likely to increase social contributions, including community enhancement.

The report’s theme is productivity, which drives national prosperity in the long run. The report notes that innovation is a tool to facilitate growth in productivity, market diversity, exports and employment. It notes also that innovation delivers greater resilience – at both the individual business and the whole-of-economy level – and greater ability to handle shocks and changing business and economic conditions.

It’s a report worth reading because it demonstrates that the government has been doing some serious thinking about the role of innovation and productivity in our economy – and this has to be an encouraging sign for anyone interested in the interface of policy and practice in this key aspect of Australia’s future.

Dr Alan Finkel AM FTSE is Chancellor of Monash University and President of the Australian Academy of Technological Sciences and Engineering. The Australian Innovation System Report 2012 can be downloaded at www.innovation.gov.au/AISreport.